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Taxes, Permits, and the Adoptation of Abatement Technology under Imperfect Compliance

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  • Villegas, Clara
  • Coria, Jessica

Abstract

This paper analyzes the effects of the choice between price-based and quantity-based emissions regulations on compliance incentives and social welfare in the presence of incomplete enforcement and technology adoption. We show that if the regulator does not adjust the level of the policies in response to the advent of the new technology, the extent of violations under tradable emissions permits (TEPs)—in contrast to taxes—decreases with the rate of technology adoption. However, in terms of welfare, the ranking of the instruments is not so straightforward: taxes may induce lower emissions damages, while TEPs induce lower abatement, investment, and expected enforcement costs. Therefore, the overall ranking depends on the extent to which these effects offset each other.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-09-20-efd.

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Date of creation: 15 Oct 2009
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Handle: RePEc:rff:dpaper:dp-09-20-efd

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Keywords: technological adoption; environmental policy; imperfect compliance; enforcement; social welfare;

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Cited by:
  1. Arguedas, Carmen & Camacho, Eva & Zofío, José Luis, 2009. "Environmental Policy Instruments: Technology Adoption Incentives with Imperfect Compliance," Working Papers in Economic Theory 2009/03, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  2. Coria, Jessica & Villegas-Palacio, Clara, 2010. "Targeted Enforcement and Aggregate Emissions With Uniform Emission Taxes," Working Papers in Economics 455, University of Gothenburg, Department of Economics.

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